Stock-picking days numbered for advisers

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Stock-picking is still popular among some New Zealand financial advisers but the practice is likely to become less common in future, a local fund manager says.

Thursday, November 21st 2013, 6:27AM 6 Comments

by Niko Kloeten

Mint Asset Management chief executive Rebecca Thomas says she has been surprised how many New Zealand advisers still pick individual securities, including shares and debt securities, for their client portfolios.

“You still find people going, ‘I don’t use managed funds’.  Some investment advisers still have a strong propensity to pick stocks,” she says.

“The main thing you ought to be doing as an adviser is financial planning not picking stocks.”

And Thomas says one of the reasons for advisers picking stocks may be New Zealand’s relatively uncomplicated tax regime.

“The complexity that a local tax regime adds gives an opportunity for advisers to add value.  New Zealand doesn’t have some of those tax nuances, and absent that I think some advisers fall back to ‘how do I demonstrate my value?

“That’s where they make their professional mana from; that’s what they see as their value.”

But Thomas says the number of advisers using individual stocks in client portfolios is likely to decline.

“As compliance regimes become more mature people focus on which part of the value chain adds most value,” she says.

“The focus for advisers is on spending time with their clients as opposed to researching individual securities.  They know they can’t fulfil their obligations to clients if they don’t pay attention to other areas.”

Thomas says another catalyst for some advisers abandoning stock picking will be the extra compliance required.

“It may come through a scenario where advisers see it as a negative that they have to spend so much time on compliance and pushing paper that they don’t have time to do other stuff.  They’re already struggling to cope with the compliance burden as it is now.

“No one’s going to tell you you can’t pick individual securities for your clients, but you’ve got to show you have done due diligence and have reasonable competence and research capacity to do that job properly.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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